MENA pay TV operator OSN has announced the signing of a partnership with Netflix. This deal is the first between Netflix and a pay TV operator across the MENA region. As a result of the partnership, OSN satellite subscribers will be able to access Netflix via a new hybrid set-top box, which OSN plans to launch at the end of the second quarter of 2018. Subscribers who will choose to access content from Netflix will not have to face a separate bill, instead they will be charged via their own OSN’ subscription.

The deal is not on an exclusive basis and covers all the recent original series offered by Netflix globally, while content will be also offered in UHD/4K and HDR.

Our Analysis

February seem to be the month of big scoops for OSN: in February 2017 they have announced the launch of low-cost packages and in February 2018 they have announced the partnership with Netflix, the first of its kind in MENA region for Netflix. Undoubtedly, it is a very important deal that brings benefits not only to the two parties but to the relevant markets of pay TV and online subscription video.

While both companies will definitely reap the benefits of this deal, IHS Markit believes that Netflix has more to gain from partnering with OSN. The SVOD service is currently performing rather clumsily in the MENA region - according to IHS Markit data, Netflix was trailing behind Shahid Plus and STARX Play Arabia at the end of 2017. One of the major problems that Netflix is facing in MENA is the lack of partnerships and deals with telcos and pay TV operators that aids the accessibility of its service to the considerably large MENA pay TV subscriber bases. These partnerships have the added benefit for OTT subscription services of reducing customer acquisition costs and taking the hassle out of having to collect payments in a region with low penetration of credit cards and, in some countries, even bank accounts. Netflix will also benefit from OSN’s extensive network of points of presence all over MENA (malls, consumer electronics shops, kiosks etc.) and from its highly efficient customer service.

This partnership is not based on an exclusivity clause which leaves the door open for Netflix to negotiate similar deals with the telcos in MENA like Etisalat, du, STC and Ooredoo. As for deals with other pay TV operators, it is interesting to note that beIN Media would have been the ideal partner, at least initially. Netflix and beIN Media do complement each other in terms of content offering, which is not the case with OSN, as beIN Media is primarily basing its offer on premium sport and Netflix on premium entertainment. However, the current state of tension between Qatar and a number of MENA countries has resulted in beIN Media’s pay TV service being banned from the markets of Saudi Arabia, Egypt and Bahrain and rather logically, has forced Netflix into the hands of OSN.

IHS Markit believes that a comprehensive deal like this will pay off for Netflix and by 2022 it is expected to cross the one million paying subscribers in MENA from the little over 200 thousands it had acquired by the end of 2017, representing a CAGR of 38.9%. IHS Markit expects that, during 2018, Netflix will announce more partnerships of this kind with telcos in the MENA region. Although OSN’s deal is certainly the first of its kind in MENA, Batelco home internet subscribers in Bahrain do have access to an unlimited Netflix data package owing to Batelco hosting Netflix servers at their local data centre. Although not a deal in the strict sense, it does show local telcos working with Netflix to improve quality of their products.

OSN also stands to gain from this deal. After two years of slumps in subscribers and revenues in 2015 & 2016, under new management, OSN took the strategic decision last year to slash the price of its packages in order to reverse that decline. In 2018, OSN is about to launch a new hybrid (satellite and OTT) set-top box, which will also support the reception of content in UHD/4K mode. The deal with Netflix will considerably help OSN to fend off its satellite subscribers’ base from the threat of cord-cutting and, to a certain degree, even grow further this base. For OSN, this deal can logically be seen as a first step in the direction of enhancing its partnership with Netflix and extending it into the joint production of local content for the MENA audiences. It must be noted that no such announcement was made but production of local, Arabic, content is vital for future growth in the region.

IHS Markit believes that this deal will not cannibalise its own standalone OTT subscription service, Wavo. Wavo is a virtual pay TV operator, modelled on Sky’s NOW TV in the UK, offering primarily a live-streaming service of channels selected from OSN’ satellite packages. In that respect Wavo does not compete directly with the on-demand offers of Netflix. IHS Markit believes that the deal will considerably assist OSN to achieve its goals: OSN satellite subscribers will experience a CAGR of 12.3% between 2017 and 2022 growing from 841,000 to 1.5 million in that five-year period. For the same five-year period, Wavo paying subscribers will grow with a much higher CAGR of 72.3%: at the end of 2017 they were just over 40,000 but at the end of 2022 they will have reached around 617,000.

One serious consideration for OSN might be the cost, for its subscribers’ base, of acquiring the new hybrid set-top box with the Netflix button. If OSN selects a solution of swapping the old boxes with the new ones, a policy followed back in 2010, this may end up being a costly option for OSN: between November 2010 and March 2011 OSN had swapped around half a million set-top boxes for an overall cost for the pay TV operator of $60 million.